Short-term US Equity trends have still grinded largely sideways in recent weeks following the bullish breakout back to new all-time highs for SPX and DJIA. Despite minor weakness following the escalation in the Middle East in recent days, Equities have failed to show much real deterioration, and breadth remains near the highs of the year. While the back half of October might prove more volatile than the first half, recent sideways consolidation does not seem indicative of that which might kick off any type of real selloff, despite all the negative headlines globally. Overall, without evidence of any serious technical damage, it’s difficult turning too negative on US equity markets. I expect that the Rosh Hashanah/Yom Kipper cycle very well might invert this year, leading to strength into Yom Kippur, not vice versa.
Similar to yesterday’s comments, despite some minor selling pressure this past week, S&P remains within 1% of all-time highs made just three trading days ago (9/30/24). Breadth has proven solid in recent weeks, and momentum and technical structure continue to be in good shape. Technology has “taken the back seat” in recent weeks to strength seen out of Industrials, Materials and Consumer Discretionary.
Yet, Technology has not materially weakened enough to suggest that any sort of peak is happening within the sector. Incidentally, stocks like AAPL show beautiful bullish triangle patterns, while the Software ETF (IGV) is on the verge of its own breakout back to new all-time highs. (Stocks like CRM and ORCL are particularly positive here technically).
As shown below, S&P’s sideways grind as seen on hourly charts over the last two weeks. This pattern is not particularly bullish just yet, but more neutral, until SPX can reclaim 5720.
However, the choppiness of the pattern along with the resilience in holding at/near Tuesday’s intra-day lows is encouraging. Despite the plethora of negative news globally, indices seem to be holding up relatively well and are not accelerating lower. Thus, this makes a good case for a bottom either Friday or early next week at/near 5660 and max near 5628. Conversely, as discussed briefly above, movement above 5720 would help to improve the SPX pattern.
Given that stocks like MSFT, AMZN, AAPL, along with the SOX index, have all made minor pullbacks which have not shown technical damage from the lows in August, it’s likely that this consolidation stabilizes and starts to turn higher early next week.
S&P 500 Index
Consumer Discretionary breakout vs. Consumer Staples still favors a Risk-on stance
As might have been expected, the big bounce in Chinese Equities over the last two weeks served to positively influence many Casino names, along with some isolated Retailing names like EBAY and Ralph Lauren. Homebuilders/Home Construction names have also benefitted lately, largely as the FOMC began its Rate cutting campaign and HD, PHM, and LOW are three of the top 10 performers this past month within Consumer Discretionary (“Discretionary”).
As seen below, this relationship between Discretionary and the Consumer Staples (“Staples”) sector seems to be an important one that normally can give clues about whether markets are in “risk-on”, or “risk-off” type environments.
As seen on the left-hand side of this ratio chart of Equal-weighted Discretionary vs. Equal-weighted Staples, this relationship starts to turn down sharply as the Stock market begins larger corrections. (This ratio turned down about two months prior to SPX making its bull market peak during the first week of January 2022).
This might make some intuitive sense, as investors flock towards safety, and Staples outperforms Discretionary.
Recently, this ratio is still signaling that our current US Stock market is favoring more of a “risk-on” type environment, as Discretionary has broken out to new multi-year highs vs. Staples in the last couple of weeks.
I find this gauge helpful during times when markets are jittery, looking at relationships between Discretionary and Staples. The good news for stock market Bulls lately is that Discretionary remains a relative outperformer vs. the Staples sector and looks to continue outperforming to potentially challenge former peaks last reached in late 2021.
NYSEMKT:RSPD – NYSEMKT: RSPS
Software could represent the next major breakout within Technology
Many investors paid attention when Semiconductor stocks were showing superior relative strength over the past year. While this waned a bit in recent months, the attention now seems to be shifting towards Software names.
As seen below, the IGV (Ishares Tech-expanded Software ETF) has been straddling near all-time high territory for the last few months following a successful retest of all-time highs into July.
This pattern remains quite bullish, as a large Cup and Handle pattern, technically speaking.
I anticipate a coming breakout, which will be confirmed on a daily close above $90. Such a development would argue for a quick move up to $100 and the Software sector remains one to concentrate on which might lead Technology once this breakout happens.
Stocks like CRM, ORCL, PLTR, and APP are particularly attractive within the IGV etf, technically speaking.
iShares Expanded Tech-Software Sector ETF
Technology’s sideways churn has been led by stocks like NVDA and AAPL, both within Triangle patterns
Technology has slowed somewhat in the last couple months, but has not shown sufficient deterioration to avoid this sector. Many index/ETF dominant names like NVDA and AAPL remain in Triangle patterns which are thought to be resolved by upside breakouts in the weeks to come.
At a combined 10% of SPX, the consolidation in both NVDA and AAPL within Triangle patterns is at least part of the reason for a bit of slowdown in the Tech trade lately.
As seen, this triangle pattern requires a move above 126.50 for a breakout (and this should be the likely outcome) and today’s rally to multi-day highs has provided a bit of a short-term relative spark for Technology.While Equal-weighted Tech is just fractionally negative (-0.08%), XLK is up +0.55%, due largely to NVDA, PLTR, AMD, CRWD, and MU outperformance, all of which finished higher by more than 2%.
Bottom line, NVDA looks appealing here ahead of its breakout, and movement above 126.50 should result in acceleration that leads this back to new highs, technically.
NVDA US Equity (NVIDIA CORP) Daily
